Richardson Electronics, Ltd.

Good day and thank you for standing by. Welcome to the Richardson Electronics third quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Edward Yusin, Chairman and CEO. Please go ahead.

Good morning and welcome to Richardson Electronics conference call for the third quarter of fiscal year 2022. Joining me today are Robert Benn, Chief Financial Officer, Wendy Dedell, Chief Operating Officer and General Manager for Richardson Healthcare, Greg Peliquin, General Manager of our Power and Microwave Technologies Group, and Jens Rupert, General Manager of Canvas. As a reminder, this call is being recorded and will be available for playback. I would also like to remind you that we'll be making forward-looking statements. They're based on current expectations and involve risks and uncertainties. Therefore, our actual results could be materially different. Please refer to our press release and SEC filings for an explanation of our risk factors. Our third quarter set another quarterly sales record since we sold our FED in 2011. It was also our seventh consecutive quarter of sequential revenue growth, which is remarkable when you consider the number of holidays that are in our third quarter. In fact, all three business units performed better than Q3 last year, and we overcame the unprecedented absences due to COVID-19 cases, particularly throughout the month of January. Net sales for the third quarter of fiscal 2022 were 55.3 million, 22.3% higher than last year's third quarter. Gross margin declined due to a higher percentage of lower margin sales, higher freight costs, and cost increases for raw material and components. Despite these challenges, third quarter operating income was $3.6 million, or 6.6% of revenue, which is a significant increase from 315,000 or 0.7% of revenue for the same period last year. Backlog at the end of the quarter was $175.6 million, up 19.5% over the second quarter. Each of our three business units had higher backlog, driven by strong bookings growth. Within PMT, our largest business unit, backlog increased across numerous product lines, most notably in power management, semiconductor wafer fab, and magnetrons. These products are used in many new applications, including alternative energy, 5G, and manufacturing diamonds, hydrogen, and building products. I'm pleased with the performance, and I'm confident this will lead to continued growth. Considering Russia's recent aggressive actions against the Ukraine, we stopped all shipments to Russia. Historically, we've shipped less than a million dollars to Russia each year. We also have customers in the Ukraine, which represent less than $1 million in revenue per year, primarily in health care. We extend our heartfelt support to our friends, families, and customers in the Ukraine and wish for a very swift end to this unjust war. I'll now turn the call over to Bob Benn, Chief Financial Officer, to review our third quarter financial performance in more detail. Then Greg, Wendy, and Jens will provide more detail on our third quarter performance as well as our new programs.

Thank you, Ed, and good morning. I will review our financial results for our third quarter and first nine months of fiscal year 2022, followed by a review of our cash positions. Net sales for the third quarter of fiscal 2022 increased to 55.3 million, up 22.3%, compared to net sales of 45.2 million in the prior year's third quarter, due to higher net sales across all three business units. PMT sales increased by 8.8 million, or 25% from last year's third quarter, driven by strong growth from our new power and microwave technology partners for various applications, including power management and 5G infrastructure, as well as increasing shipments of our patented Altra 3000. In addition, sales for several Electron 2 product lines, including semiconductor wafer fabrication, increased from the third quarter of fiscal 2021. Canvas sales increased by 1.1 million, or 15%, due to the strong customer demand in North America and Europe. Richardson Healthcare sales increased 0.2 million, or 7.4%, year-over-year due to an increase in part sales and an increase in demand for the Alta 750 tubes. In addition to higher revenues, total company backlog increased to its highest level since the sale of RFPD of $175.6 million in the third quarter of fiscal 2022 from $146.9 million at the end of the second quarter of fiscal 2022 and $98.7 million at the end of the third quarter of fiscal 2021. Backlog increased in all three business units when compared to both third quarter last year and our most recent second quarter. Gross margin for the third quarter was 31.8% in net sales compared to 34.9% in net sales in last year's third quarter. PMT's margin decreased to 32.2% from 34.9% due to a higher mix of lower margin PMG sales partially offset by increased shipments of wind turbine modules. Canvas gross margin decreased to 32.2% from 35.2% because of higher global freight costs. Healthcare's gross margin was 25.1% in the third quarter of fiscal 2022 compared to 33.0% in the prior year's third quarter due to an increase in component scrap expense and rising freight costs. Operating expenses were $13.9 million for the third quarter of fiscal 2022 compared to $15.5 million in the third quarter of fiscal 2021. The decrease in operating expenses resulted from the non-recurrence of a $1.6 million legal settlement in the third quarter of fiscal 2021. In addition, lower legal fees were offset by higher employee compensation expenses. The company reported operating income of 3.6 million or 6.6% of net sales for the third quarter of fiscal 2022 versus operating income of 0.3 million or 0.7% of net sales reported in the third quarter of last year. Other expenses for the third quarter of fiscal 2022, including interest income and foreign exchange, were 0.1 million compared to other expenses of less than 0.1 million in the third quarter of fiscal 2021. The income tax provision of $0.6 million for the quarter reflected a provision for foreign income taxes and the offset of a U.S. tax provision against the valuation allowance. In addition, state income taxes for Illinois increased due to the suspension of net operating loss carry-forwards until the end of fiscal 2023. Net income was $2.9 million, or 5.2% of net sales for the third quarter of fiscal 2022, as compared to a net income of $0.2 million. or 0.5% in net sales in the third quarter of fiscal 2021. Earnings per common share on a diluted basis in the third quarter of fiscal 2022 were 21 cents compared to 2 cents per common share on a diluted basis in the prior year's third quarter. Now turning to a review of the results for the first nine months of fiscal year 2022. Net sales for the first nine months of fiscal year 2022 were $163 million, an increase of 28.9% from $126.5 million in the first nine months of fiscal year 2021. Net sales increased by $30.4 million or 30.8% for PMT, $5.2 million or 25.6% for Canvas, and $0.9 million or 12.2% for Richardson Healthcare. Gross margin decreased to 31.6% from 33.6%, primarily reflecting product mix in PMT and higher global freight costs in Canvas, partially offset by improved manufacturing efficiencies for health care. Operating expenses were $40.6 million for the first nine months of the fiscal year, which represented a decrease of $1.3 million from the first nine months of the last fiscal year. The decrease was due to the non-recurrence of a $1.6 million legal settlement in the first nine months of fiscal 2021 and lower legal fees, partially offset by higher employee compensation expenses. Operating income for the first nine months of fiscal year 2022 was $11 million, or 6.7% of net sales, as compared to an operating income of $0.6 million, or 0.4% of net sales, for the first nine months of fiscal year 2021. Other expenses for the first nine months of fiscal 2022, including interest income and foreign exchange, were less than $0.1 million as compared to other expenses of $0.5 million for the first nine months of fiscal 2021. The income tax provision of $1.3 million reflected a provision for foreign income tax and the offset of US tax provision against the valuation allowance. In addition, state income taxes for Illinois increased. The company reported net income of $9.6 million or 5.9% of net sales for the first nine months of fiscal year 2022 versus a net loss of $0.2 million for the first nine months of fiscal year 2021. Earnings per common share on a diluted basis in the first nine months of fiscal 2022 were $0.71 compared to a net loss of $0.02 per common share on a diluted basis in the prior year's first nine months. Turning to a review of our cash position. Cash and investments at the end of the third quarter fiscal 2022 were $39.1 million compared to $39.7 million at the end of the second quarter of fiscal 2022 and $47.4 million at the end of the third quarter of fiscal 2021. The company continues to invest in working capital to support its growth initiatives. Accounts receivable increased to $31.6 million at the end of the third quarter fiscal 2022 However, days outstanding were 39 at the end of the third quarter compared to 40 days at the end of the second quarter. In addition, inventory grew to $73.7 million from $70.7 million at the end of the second quarter of fiscal 2022, primarily due to increases in components and work in process for our manufacturing business. Capital Expenditures were $0.6 million in the third quarter of fiscal 2022, the same as in the third quarter of fiscal year 2021. Approximately $0.2 million related to investments in our healthcare business, $0.2 million was for our manufacturing business, $0.1 million was for our IT system, and $0.1 million was for other projects. We paid $0.8 million in cash dividends in the third quarter of fiscal 2022. In addition, based on our current financial position, our board of directors declared a regular quarterly cash dividend of $0.06 per common share, which will be paid in the fourth quarter of fiscal 2022. Finally, during the third quarter of fiscal 2022, we repatriated $0.5 million to the U.S. from Japan, bringing our total year-to-date repatriations to $1.5 million. Our U.S. domiciled cash and cash equivalents balance totaled $24.8 million as of February 26, 2022. Now, I will turn the call over to Greg, who will discuss the results for our Power and Microwave Technologies Group.